Brazil’s Economy Projected to Show Strong Growth in Second Quarter, According to Reuters

By Gabriel Burin

BUENOS AIRES – Brazil’s economy continued to grow robustly in the last quarter compared to the first three months of the year, with household spending playing a significant role, according to a recent Reuters poll.

However, the increase in imports of goods and services is expected to have impacted the nation’s growth negatively, as imports have outpaced less dynamic exports due to a strong foreign exchange rate, which has seen a recent decline.

Gross domestic product (GDP) figures for the second quarter, set to be released on Tuesday, are anticipated to show a 0.9% growth compared to the January-March period, which recorded a 0.8% increase, based on the median forecast of 18 analysts surveyed from August 28 to September 2.

Barclays economists projected that the Brazilian economy grew by 0.9% in the quarter, equating to an annual increase of 2.7%. This growth is likely being supported by resilient private consumption, bolstered by a strong labor market and rising real wages, as outlined in their report.

While public spending has seen a boost from increased social benefit payments and aid related to recent floods, the external sector has been a drag on growth, mainly due to the rise in imports.

Analysts from Santander noted a 7.8% quarterly increase in imports compared to a modest 1.3% rise in exports. In the first quarter, imports and exports grew by 6.5% and 0.2%, respectively, as Brazilian consumers leaned towards foreign goods and services.

On the supply side, total industrial production, which includes mining, is expected to have expanded by 1.2%, although this was offset by a 2.4% decline in the smaller agricultural sector, according to Santander’s analysis.

Year-over-year, economic growth for the second quarter was estimated at 2.7%, the highest since the 3.5% recorded in the same period in 2023, following the inauguration of President Luiz Inacio Lula da Silva early last year.

J.P. Morgan economists noted that Brazil’s growth has been particularly notable, projecting that the economy could grow close to 3% for the second consecutive year, an average rate that surpasses other countries in the region for 2023 and 2024.

They also suggested that this strength is likely to persist through the third quarter but anticipate a slowdown ahead as both monetary and fiscal policies are expected to be more restrictive for growth for the first time in a long while.

Recently, Lula indicated he would support a potential interest rate hike proposed by his nominee for central bank chief for the term from 2025 to 2028. At the same time, the finance ministry has pledged to maintain fiscal discipline by the end of the year.

(Reporting and polling by Gabriel Burin; Editing by Ross Finley and Christina Fincher)